Cash Out Refinance/1031 Exchange

[Lawrence Rutkowski]

Hello friends.

Are we able to use the proceeds from a cash-out refi on an investment property and 1031 it towards another?  

Also, if so, how does one go about putting that money into a 1031 exchange and doing this?  I've never done this, so any and all information would be much appreciated, thank you!

[Dave Foster]

@Lawrence Rutkowski yes a refinance is typically seen as borrowing against equity.  Borrowing is not profit.   So although you're getting cash it's not taxable.

The difference when you refi right before a 1031 is that the refi to get cash will not be accompanied by any length of debt service so the IRS views it as really just taking profit early. 

That's why the recommendation is complete your 1031 and then immediately refi.  You get the cash, it's not taxable, and your tenants are paying the P and I back.